New Afghan president re-opens inquiry into Kabul Bank scandal

Reuters Staff

3 Min Read

Afghan President Ashraf Ghani looks on as he listens to teachers during his visit to the Amani High School in Kabul September 30, 2014. REUTERS/Wakil Kohsar/Pool

KABUL (Reuters) - Afghanistan’s new president on Wednesday re-opened an inquiry into a 2010 bank scandal involving a Ponzi scheme that collapsed triggering a financial crisis and dealing a heavy blow to confidence in the banking sector.

President Ashraf Ghani re-opened an inquiry into the theft of almost $1 billion from Kabul Bank with a decree, fulfilling a campaign promise to make fighting corruption a priority.

Afghanistan’s corruption watchdog called the scandal “one of the largest banking failures in the world”. Few of those involved were ever punished or returned the money.

“As a first step, based on our promise to take action against administrative corruption, today the Kabul Bank case will be re-opened and an investigation will be launched,” Ghani told reporters in Kabul.

“We promised to combat corruption comprehensively, on a full scale and in a principled manner.”

The two former heads of the bank, founder Sher Khan Fernod and former Chief Executive Haji Khalil Ferozi, convicted of taking $810 million of the $935 million stolen, were both sent to jail for five years.

Brothers of then President Hamid Karzai and his then first vice-president, Mohammad Qasim Fahim, who were both shareholders, were spared jail sentences in the rulings thanks to a presidential decree that granted immunity from prosecution to those who returned funds.

The case was viewed as a crucial barometer of Afghanistan’s commitment to stabilizing the economy. The government was forced to bail out the country’s then biggest bank. It was later relaunched as the state-run New Kabul Bank.

While small sums were returned, most of the money was never repaid and confidence in the banking sector has yet to fully recover.

“It’s a smart move for the new government to announce further investigations because there is little else that would demonstrate their commitment to fighting corruption,” said Grant McLeod, former adviser to the corruption watchdog and author of its upcoming report on the Kabul Bank, due out later this month.

“That being said, there have been many promises and feigned proceedings in the past so it really comes down to how credibly the investigations are done.”

Reporting by Hamid Shalizi and Jessica Donati; Editing by Robert Birsel